Chapter 1,2&3 Flashcards
31) The cash flow related to interest payments less any net new borrowing is called the: A) operating cash flow. B) capital spending cash flow. C) net working capital. D) cash flow from assets. E) cash flow to creditors.
E) cash flow to creditors.
32) Cash flow to stockholders is defined as:
A) the total amount of interest and dividends paid during the past year.
B) the change in total equity over the past year.
C) cash flow from assets plus the cash flow to creditors.
D) operating cash flow minus the cash flow to creditors.
E) dividend payments less net new equity raised
E) dividend payments less net new equity raised.
33) Which one of the following is an expense for accounting purposes but is not an operating cash flow for financial purposes? A) Interest expense B) Taxes C) Cost of goods sold D) Labor costs E) Administrative expenses
A) Interest expense
34) Depreciation for a tax-paying firm:
A) increases expenses and lowers taxes.
B) increases the net fixed assets as shown on the balance sheet.
C) reduces both the net fixed assets and the costs of a firm.
D) is a noncash expense that increases the net income.
E) decreases net fixed assets, net income, and operating cash flows.
A) increases expenses and lowers taxes.
35) Which one of the following statements related to an income statement is correct?
A) Interest expense increases the amount of tax due.
B) Depreciation does not affect taxes since it is a non-cash expense.
C) Net income is distributed to dividends and paid-in surplus.
D) Taxes reduce both net income and operating cash flow.
E) Interest expense is included in operating cash flow.
D) Taxes reduce both net income and operating cash flow.
36) Which one of the following statements is correct concerning a corporation with taxable income of $125,000?
A) Taxable income minus dividends paid will equal the ending retained earnings for the year.
B) An increase in depreciation will increase the operating cash flow.
C) Net income divided by the number of shares outstanding will equal the dividends per share.
D) Interest paid will be included in both net income and operating cash flow.
E) An increase in the tax rate will increase both net income and operating cash flow.
B) An increase in depreciation will increase the operating cash flow.
37) Which one of the following will increase the cash flow from assets, all else equal?
A) Decrease in cash flow to stockholders
B) Decrease in operating cash flow
C) Decrease in the change in net working capital
D) Decrease in cash flow to creditors
E) Increase in net capital spending
C) Decrease in the change in net working capital
38) For a tax-paying firm, an increase in \_\_\_\_\_\_\_\_ will cause the cash flow from assets to increase. A) depreciation B) net capital spending C) the change in net working capital D) taxes E) production costs
A) depreciation
39) Which one of the following must be true if a firm had a negative cash flow from assets?
A) The firm borrowed money.
B) The firm acquired new fixed assets.
C) The firm had a net loss for the period.
D) The firm utilized outside funding.
E) Newly issued shares of stock were sold.
D) The firm utilized outside funding.
40) An increase in the interest expense for a firm with a taxable income of $123,000 will: A) increase net income. B) increase gross income. C) increase the cash flow from assets. D) decrease the cash flow from equity. E) decrease the operating cash flow.
C) increase the cash flow from assets.
40) An increase in the interest expense for a firm with a taxable income of $123,000 will: A) increase net income. B) increase gross income. C) increase the cash flow from assets. D) decrease the cash flow from equity. E) decrease the operating cash flow.
C) increase the cash flow from assets.
41) Which one of the following is excluded from the cash flow from assets? A) Accounts payable B) Inventory C) Sales D) Interest expense E) Cost of goods sold
D) Interest expense
42) Net capital spending:
A) is equal to ending net fixed assets minus beginning net fixed assets.
B) is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.
C) reflects the net changes in total assets over a stated period of time.
D) is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital.
E) is equal to the net change in the current accounts.
B) is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.
43) Which one of the following statements related to the cash flow to creditors must be correct?
A) If the cash flow to creditors is positive, then the firm must have borrowed more money than it repaid.
B) If the cash flow to creditors is negative, then the firm must have a negative cash flow from assets.
C) A positive cash flow to creditors represents a net cash outflow from the firm.
D) A positive cash flow to creditors means that a firm has increased its long-term debt.
E) If the cash flow to creditors is zero, then a firm has no long-term debt.
C) A positive cash flow to creditors represents a net cash outflow from the firm.
44) A positive cash flow to stockholders indicates which one of the following with certainty?
A) The dividends paid exceeded the net new equity raised.
B) The amount of the sale of common stock exceeded the amount of dividends paid.
C) No dividends were distributed, but new shares of stock were sold.
D) Both the cash flow to assets and the cash flow to creditors must be negative.
E) Both the cash flow to assets and the cash flow to creditors must be positive.
A) The dividends paid exceeded the net new equity raised.
45) A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? A) $970 B) $720 C) $640 D) $3,110 E) $2,860
B) $720
Explanation: NWC = $680 (Inventory)+ 210 (AR) + 80(Cash) − 250 (AP)
Net working capital = current assets (less cash) – current liabilities (less debt)
46) A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? A) $2,050 B) $2,920 C) $4,130 D) $7,950 E) $6,890
E) $6,890
Explanation: Current assets = $7,390 (Total Asset) − 3,910 (Fixed asset)
Current assets = $3,480
Current liabilities = $3,480 (CA) − 560(NWC)
Current liabilities = $2,920
Total liabilities = $2,920 (CL) + 3,970 (Long term debt)
Total Liabilities = $6,890
Total Liabilities = Current Liabilities + Long term debt
47) A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity? A) $6,900 B) $15,300 C) $18,700 D) $23,700 E) $35,500
C) $18,700
Explanation: Shareholders’ equity = $5,900 + 21,200 − 8,400
Shareholders’ equity = $18,700
SE= Total Asset - Total Liabilities
Total Asset = $5,900 (CA) + $21,200 (Fixed Asset)
48) Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? A) −$100 B) $300 C) $600 D) $1,700 E) $1,800
B) $300
Current asset = $4,900 (total asset) - $3,200
CA = $1,700
NWC= $1700 (CA) -$1400 (CL)
Net working capital = current assets (less cash) – current liabilities (less debt)
49) Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital? A) $149,900 B) $93,500 C) $125,600 D) −$47,500 E) $56,500
B) $93,500
Explanation: Current liabilities = .40($141,000)
Current liabilities = $56,400
Total assets = $218,700 + 141,000
Total assets = $359,700`
51) The What-Not Shop owns the building in which it is located. This building initially cost $647,000 and is currently appraised at $819,000. The fixtures originally cost $148,000 and are currently valued at $65,000. The inventory has a book value of $319,000 and a market value equal to 1.1 times the book value. The shop expects to collect 96 percent of the $21,700 in accounts receivable. The shop has $26,800 in cash and total debt of $414,700. What is the market value of the shop’s equity?
A) $867,832 B) $900,166 C) $695,832 D) $775,632 E) $1,190,332
A) $867,832
Explanation: Equity MV = $819,000(MV) + 65,000(MV) + 1.1($319,000)(BV) + .96($21,700) (AR) + 26,800 − 414,700
Equity MV = $867,832
52) The Widget Co. purchased all of its fixed assets three years ago for $4 million. These assets can be sold today for $2 million. The current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the total assets today is \_\_\_\_\_\_\_\_ and the market value of those assets is \_\_\_\_\_\_\_\_. A) $4,600,000; $3,900,000 B) $4,600,000; $3,125,000 C) $5,000,000; $3,125,000 D) $5,000,000; $3,900,000 E) $6,500,000; $3,900,000
A) $4,600,000; $3,900,000
Explanation: BV = ($725,000(NWC) + 1,375,000(CL) + 2,500,000 (Net Fixed Asset)
BV = $4,600,000
MV = $1,900,000 (Cash) + 2,000,000 (CA) MV = $3,900,000
53) JJ Enterprises has inventory of $11,600, fixed assets of $22,400, total liabilities of $12,900, cash of $1,900, accounts receivable of $8,700, and long-term debt of $6,500. What is the net working capital?
A) $44,600 B) $15,700 C) $12,600 D) $15,800 E) $9,300
D) $15,800
NWC= CA - CL
NWC=$22,200-$6,400
Current Asset = $ll, 600 (INV) +$1900(Cash) +$8700(AR)
CA= $22,200
Current Liabilities = $12,900 - $6,500
CL= $6,400
54) The River Side Stop has a current market value of $26,400 and owes its creditors $31,300. What is the market value of the shareholders' equity? A) −$4,900 B) −$5,200 C) $0 D) $4,900 E) $5,200
Explanation: Shareholders’ equity = Max [($26,400 (CMV)− 31,300(Creditors)), 0]
Shareholders’ equity = 0
